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Behavioral Aspects of the Design and Marketing of Financial Products

Author

Listed:
  • Hersh Shefrin
  • Meir Statman

Abstract

Many people believe the yield enhancement produced by covered options writing is the trading world's version of a free lunch. ...The writer of the call option agrees to sell a portion of the future upside appreciation of a long stock position; in exchange, the writer gains a one-time cash receipt of the option's premium. The only way the seller of the call option can gain from this deal is for a buyer to pay more than the option is worth consistently. However, common sense says this can't always happen. [R. Binnewies, "What's Wrong With Covered Writes," Futures, July 1992, P. 32.]

Suggested Citation

  • Hersh Shefrin & Meir Statman, 1993. "Behavioral Aspects of the Design and Marketing of Financial Products," Financial Management, Financial Management Association, vol. 22(2), Summer.
  • Handle: RePEc:fma:fmanag:shefrin93
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